The Cheapest REITs in Singapore Right Now

Real estate investment trusts (REITs) own income-producing real estate assets such as shopping malls, offices, warehouses, business parks, hotels and the likes.

REITs are required to distribute at least 90% of taxable income yearly to unitholders to enjoy tax-exempt status by the tax authority. Therefore, by investing in REITs, investors are able to receive regular distributions, usually every quarter. This is one of the major reasons why REITs are an attractive investment for income investors.

Just like how you might not pay $100 for a jacket that might only be worth $30, you would not want to overpay for a REIT as well.

To know if a REIT is cheap, we can look at its price-to-book (P/B) ratio. The P/B ratio is calculated by dividing the price of the REIT by its book value per share (also known as net asset value per share).

In theory, a P/B ratio that is less than one means that the REIT is selling at less than what it is worth. An investor who buys the REIT could essentially liquidate all its assets, pay off all debt, and still end up making money.

Right now, the cheapest REITs in the Singapore market with a distribution yield of more than 7% are EC World Real Estate Investment Trust (SGX: BWCU), Sabana Shariah Compliant REIT (SGX: M1GU), BHG Retail REIT (SGX: BMGU), ESR-REIT (SGX: J91U) and Soilbuild Business Space REIT (SGX: SV3U).

Source: Individual REIT’s website

EC World Real Estate Investment Trust, Sabana Shariah Compliant REIT and ESR-REIT are classified under industrial REITs. BHG Retail REIT, as the name suggests, is a retail REIT while Soilbuild Business Space REIT represents a diversified REIT.

The cheapest of the lot with a P/B ratio of 0.8 is EC World Real Estate Investment Trust. It is the first specialised logistics and e-commerce logistics REIT from China that was listed here in July 2016. The REIT owns properties mainly used for e-commerce, supply-chain management and logistics.

However, the P/B ratio is only a starting point for investors who are looking for REITs that might be undervalued. Other aspects that Foolish investors need to consider are the REIT’s asset quality, past performance of the REIT’s portfolio, distribution growth, balance sheet health, quality of management team and the sponsor, the REIT’s prospects, and so on. Only then can a holistic decision be made on whether to buy a particular REIT.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.